OSAKA -- Sharp plans to start reorganizing domestic operations, including closing four plants and exiting or selling its money-losing solar panel business, in a bid to improve its flagging fortunes.
The Japanese electronics giant raised nearly 140 billion yen ($1.15 billion) in the autumn of 2013 through such measures as public offerings. Its capital ratio had recovered to around 10% at the end of September 2014. But the company could need some 300 billion yen going forward because of write-downs on facilities. Since raising money on the market would be difficult, as a brokerage official notes, Sharp plans to request capital from two major lenders.
The company suffered total losses of more than 900 billion yen for fiscal 2011 and fiscal 2012 after a massive investment in large liquid crystal display panels failed to pay off. It engaged in no significant restructuring aside from offering early retirement to around 3,000 workers.
Sharp moved into the black in fiscal 2013 with an operating profit of more than 100 billion yen on brisk sales of LCD panels for Chinese smartphone makers and solar panels. But the improvement was only temporary, since competition in both areas is fierce. Indeed, it may have led to the company putting off restructuring.
Reorganizing production of electronic components will form a key part of the restructuring plan due out this May. The Mihara plant, which Sharp intends to close, makes light-emitting diodes and employs about 400 workers. A final decision to shut down the plant would mark the company's first closing of a major domestic factory.
The Fukuyama No. 1 to No. 4 plants, which produce such items as smartphone sensor components, have an average operating rate of around 40%. Closing the first three plants would let Sharp consolidate production into the fourth, lifting that factory's operating rate.
In the solar panel business, escalating competition with Chinese rivals makes it tough to turn a profit. Sharp, which is eyeing an exit, will book write-downs related to the business in fiscal 2014 -- one reason for its widening losses this fiscal year. It apparently still has agreements to procure roughly 200 billion yen worth of silicon through 2020, at prices higher than current market value. Altering these contracts may force it to book even more impairment losses.
President Kozo Takahashi's basic strategy is to bring all of Sharp's businesses into the black. Until the middle of last year, his explanation that the company needed to support itself through several areas apart from high-risk LCDs was convincing.
But offshoring of production of other mainstay items, including white goods, backfired when the yen plunged. Sharp also makes core solar panel components overseas, and the Japanese currency's weakness has pushed up import costs. Earnings in core businesses have fallen across the board in fiscal 2014.
Margins have also narrowed sharply for small and midsize LCD panels, which are supposed to be Sharp's bread and butter, amid heightening price competition over parts for Chinese customers. The company's remaining options, including leaving unprofitable businesses and shutting down factories, are all painful, drastic reforms.
How Sharp will handle its roughly 50,000 employees groupwide will be in the spotlight when its restructuring plan comes out. A prolonged earnings slump could cause talented staffers to flee.